A New Playbook for IRA Tax Credits

The clean energy landscape is in constant motion. Just as we’ve grown accustomed to the Inflation Reduction Act (IRA), the new "One Big Beautiful Bill Act" (OBBB) has reshuffled the deck, creating an urgent need for a new strategic playbook. Central to this new reality is the concept of "safe harbor"—a term that has taken on even greater significance.

In IRA terms, "safe harbor" can refer to two fundamentally different but equally critical planning tools. One is an offensive play to boost your project's value. The other is a defensive play to protect its very eligibility. With the OBBB's new deadlines and restrictions, understanding this distinction is more crucial than ever for your bottom line.

This guide is your updated playbook. We'll demystify this "tale of two safe harbors" in the post-OBBB world. We'll show you how to lock in favorable rules with the Begin Construction safe harbor and how to maximize returns with the Domestic Content safe harbor. At Giraffe Financial, our mission is to make the complicated easy, ensuring you get every dollar you deserve.

The Defensive Play: A Race Against the Clock

In the world of tax credits, stability is everything. The "Beginning of Construction" safe harbor is your most powerful defensive tool to lock in pre-OBBB rules and obtain a longer window to place a project into service. Historically, the IRS has provided two ways to establish a "Begin Construction" date:

• The Physical Work Test: This is met when you start significant physical work, either on-site (like excavation) or off-site (like manufacturing custom equipment).
• The 5% Safe Harbor: This is often the most straightforward path. A project is considered to have begun construction if you've paid or incurred at least 5% of its total cost.

The OBBB's Big Change for Wind and Solar

The OBBB has introduced new restrictions for projects in general and accelerated phasedowns for wind and solar projects seeking to qualify for the tech-neutral §45Y and §48E credits:

1. Foreign entity of concern (“FEOC”) rules: This regime will deny technology-neutral tax credits to projects that source certain amounts of Chinese equipment among many other restrictions. These restrictions will not apply to projects that are under construction by the end of 2025.

2. The 12-Month Window: Wind and solar projects that begin construction by July 4, 2026 (12 months after the OBBB's enactment) can still take advantage of the traditional four-year continuity safe harbor. This means they will have until the end of 2030 to be placed in service.

3. The 2027 Placed-in-Service Cliff: Projects that fail to begin construction by the July 4, 2026 deadline will face a hard placed-in-service deadline of December 31, 2027. Given that projects can take several years to complete, this effectively disqualifies many from receiving the credits.

This change makes establishing a "Begin Construction" date before the deadline the single most important action a wind or solar developer can take to de-risk a project. Adding to the urgency, a recent Executive Order has directed the Treasury to review and possibly tighten the standards for what constitutes "beginning construction," with new guidance expected within 45 days, especially with respect to the FEOC rules discussed above. When read in conjunction with the legislative text, it seems possible new guidance will target “stockpiling” strategies where taxpayers might have ordered large amounts of material for future use in projects to achieve the 5% safe harbor.

The Offensive Play: Maximizing Value with Domestic Content

While the "Begin Construction" safe harbor protects your project, the Domestic Content safe harbor is your offensive strategy to increase its value. This elective tool is the key to unlocking the valuable 10% Domestic Content bonus adder, which can significantly improve your project's economics.

The OBBB has left the domestic content bonus largely intact, but it has harmonized the required domestic content percentages for both the Investment Tax Credit (ITC) and Production Tax Credit (PTC), creating a single, escalating schedule.

The process remains simple:

• Identify Your U.S.-Made Components: Use the IRS-provided tables to find the cost percentages for your project's components.
• Sum the Percentages: Add up the percentages for every component that is domestically manufactured.
• Meet the Threshold: If the total meets the required domestic content percentage for the year your project begins construction, you qualify for the 10% bonus.

However, the new Foreign Entity of Concern (FEOC) rules add a layer of complexity. Developers must now be vigilant about their supply chains to ensure they are not sourcing from prohibited foreign entities, which could jeopardize their eligibility for the underlying credit, let alone the bonus.

The Giraffe Financial Action Plan

A winning post-OBBB strategy requires a strong defense and a powerful offense. The time to implement this two-pronged approach is now.

Your Immediate Strategic Priorities:

1. Lock In Your Defense: Immediately assess every wind and solar project in your pipeline. Projects that establish a "Beginning of Construction" date before January 1, 2026 will not be subject to the FEOC restrictions and before July 4, 2026 to secure a longer window to place the project into service.

2. Execute Your Offense: Don't leave money on the table. As projects source more US manufactured materials, look to see if your project is eligible for 10% Domestic Content bonus, and additionally use the opportunity to focus on supply chain diligence to navigate the new FEOC rules.

The Giraffe Difference:

• For Your Defensive Play: Our expert Cost Segregation service provides the meticulous, third-party analysis and audit-ready documentation needed to confidently substantiate your "Begin Construction" date.
• For Your Offensive Play: We manage the entire compliance process for the Domestic Content bonus, from vetting suppliers for FEOC compliance to preparing all necessary documentation.
• For Your Entire Game Plan: From Prevailing Wage and Apprenticeship compliance to IRS pre-filing and credit monetization, Giraffe is your single, expert partner.

The rules of the game have changed, but a smart strategy is timeless. With Giraffe Financial, you have the expert partner you need to protect your investments and maximize your returns in this new era.

Let's get your credits.